A Neighbour's Struggle Hits Close to Home

Tanzania is navigating significant economic headwinds, marked by a stubborn cost of living crisis and growing public debt, presenting a cautionary tale for its East African neighbours, including its largest trading partner, Kenya. While Tanzania's headline inflation has remained relatively stable, hovering around 3.4% in September 2025, underlying pressures, particularly high food inflation at 7%, are squeezing households and fueling discontent. This situation offers vital lessons for the entire East African Community (EAC) on the perils of ambitious development agendas financed by extensive borrowing in a volatile global economy.

The Debt and Development Dilemma

Under President Samia Suluhu Hassan, Tanzania has continued to pursue capital-intensive infrastructure projects, such as the Standard Gauge Railway (SGR) and the Julius Nyerere Hydropower Plant, aimed at transforming the nation into a regional logistics and energy hub. While these projects are expected to yield long-term returns, they have contributed to a rise in the national debt. According to a July 2025 analysis by the International Monetary Fund (IMF), Tanzania's public debt stood at 49.2% of GDP at the end of the 2023/24 fiscal year, up from 45.9% the previous year. The IMF and World Bank assess the country as being at a "moderate risk of debt distress."

This scenario is strikingly familiar to Kenya, which has also heavily invested in large-scale infrastructure, including its own SGR, leading to its own set of debt sustainability concerns. The Tanzanian experience underscores the critical need for prudent debt management and highlights the risk that rising debt service costs can crowd out essential social spending and strain public finances. Analysts note that while Tanzania's fiscal and debt position is currently considered sustainable, continued borrowing for projects with delayed returns could pose future challenges.

Implications for Kenya and Regional Trade

The economic health of Tanzania is of paramount importance to Kenya. The two nations share deep and expanding trade links. In 2024, Kenyan exports to Tanzania were valued at Sh67.20 billion, while imports stood at Sh58.72 billion. Key Kenyan exports include manufactured goods like soap and pharmaceuticals, as well as agricultural products. An economic slowdown in Tanzania, characterized by reduced purchasing power and currency pressures, could significantly dampen demand for these Kenyan goods, impacting businesses and employment at home.

Furthermore, the narrowing trade surplus, which stood at Sh8.48 billion in 2024, signals increasing competition and the need for Kenya to diversify its export markets and enhance its competitiveness. While both governments have made significant strides in reducing non-tariff barriers, with 50 such obstacles eliminated in the past four years, economic instability remains a potent threat to the seamless flow of goods and services across the border.

A Test for the East African Community

Tanzania's economic challenges also have broader implications for the EAC's integration agenda. Economic instability in a key member state can complicate efforts towards achieving milestones such as a monetary union. While President Hassan's administration has renewed Tanzania's commitment to the regional bloc, domestic economic pressures can often lead to protectionist tendencies that undermine the principles of the common market. Non-tariff barriers, though reduced, remain a persistent issue that hampers the full potential of intra-regional trade.

The situation in Tanzania serves as a critical reminder for EAC leaders of the interconnectedness of their economies. A coordinated regional approach to managing debt, controlling inflation, and ensuring that the benefits of large-scale development projects are equitably shared is essential for long-term stability and prosperity. As Tanzanians grapple with the high cost of essentials, leaders in Nairobi and across East Africa are watching closely, aware that their neighbour's fortunes are inextricably linked to their own.